By John Klym
Problem Statement
The U.S. is in decline. It currently suffers from partisan gridlock, crumbling infrastructure, a pandemic, racial injustice, economic inequality, and more. In fact, by some economic measures, China has even replaced the U.S. as the world’s premier economic power. Yet, all hope is not lost. Historical research suggests that 40% of declining powers regain their status at the top through a combination of wide-ranging reforms especially in the domestic sphere (MacDonald et al. 22). A domestic reform the U.S. must tackle is its energy infrastructure in order to combat climate change and China’s rise. Currently, China is pushing its own climate change agenda, already becoming the top global producer of solar panels and batteries while the U.S. sits in fourth place (Baker 2). Additionally, the U.S. is falling behind China’s R&D spending growth rate; the American Association for the Advance of Science estimated the U.S. would have to increase its R&D spending relative to GDP from 2.5% to 6.7% just to keep pace with China (MacDonald et al. 34). Meanwhile, blackouts in the U.S. are becoming more common while energy needs are poised to grow in the coming years (“Power Outages…”; Steeves 648). A focus on renewable energy investment and the transition to clean energy can help the U.S. address core problems for its power at home and abroad. The Biden administration looks poised to deliver on this issue, but what should these policy solutions look like? I propose that, in order for the U.S. to better compete with China and maintain its position of global leadership, the U.S. must invest in combating climate change through a combination of carbon pricing and government spending. A federal cap-and-trade auction program will finance increased government spending to invest in new technologies and green infrastructure projects, which will encourage the private sector to follow suit. This policy will not only respond to climate change but also the rise of China and its threat to American global power.
Background
To say the U.S. is in decline is a major claim and it is well-challenged. The U.S. spends much more on defense than any country including China. The U.S. also has the largest GDP. However, these arguments are complacent and ignore the warning signs shown in other statistics. The UK’s Center for Economic and Business Research (CEBR) projects that China will overtake the U.S. in GDP by 2028 if not sooner (CEBR 8). Already, in 2014 China passed the U.S. in GDP in terms of purchase power parity (PPP) according to the World Bank, and it has projected that the Chinese share of global PPP GDP will rise while the U.S.’s falls over the next several years (MacDonald 21). Even prior to that in 2013 China passed the U.S. to become the largest trading nation (MacDonald 21). Additionally, China has more total foreign investment, renewable energy production, internet users, and back-end research and development (R&D) spending (MacDonald 21). Meanwhile, those comparisons do not even mention a host of other domestic and international problems that have hurt the American image abroad. The U.S. is losing its status at the top of the global order and ceding power and prestige to China.
However, Paul MacDonald and Joseph Parent argue that there is a “Road to Recovery.” Their historical research suggests that when the current hegemon loses its top rank to another country, the state is able to recover its position at the top of the international order 40% of the time. Their data was from 16 cases of hegemonic decline beginning in 1870 where the state’s economic rank was lost for at least five years. Although the cases are not a perfect comparison for the U.S. since not all are democracies or take place in the nuclear age, they do illustrate ways in which the U.S. must act to protect its position as the hegemon (MacDonald et al. 24-5). MacDonald and Parent found that generally each state that regained its role as hegemon did so by reevaluating its foreign commitments, rethinking its military capabilities, and completing major domestic reforms (24-7). The U.S. could benefit from each of these, but this paper will focus on domestic reforms in relation to renewable energy. In fact, this piece of the puzzle may be the most important because even the wisest foreign policies and military actions will “amount to little if the [domestic] foundations on which they rest are cracking or shrinking” (27).
Why is renewable energy so important though? Although there are certainly other pressing domestic issues, none is more important to competition with China than energy. Energy security has and will continue to play a key role in international politics. “The term ‘energy security’ means that energy sources are sufficient to meet the energy demands of a political community, which include social, economic, and military activity, and that this demand will be met in a reliable, stable manner in the future” (Steeves 645). Thus, energy security is a major factor in a state’s wealth and power, which also makes it a crucial piece of the technological and economic gains of both the U.S. and China.
Notably, major shifts of global power have occurred during times of energy transitions. For example, Middle Eastern nations grew significantly more powerful on the global stage after 1950 due to the transition from coal to oil. Similarly, “Hegemonic advancement can be seen during the energy transition periods, including the transitions of 1750-1850 from peat and charcoal to coal, and the 1900-1950 transition from coal to oil” (Steeves 656). In the former period, it was Great Britain that rose in power, while in the latter the U.S. and Soviet Union became global superpowers. Although correlation is not causation and that oversimplification obscures key elements in those states’ rise to power, the transition from non-renewable to renewable energy could produce a power shift similar to those historical shifts. The power-shift argument stands even without mentioning the national security implications of energy security and self-reliance. As examined above, states that can produce either through technology or resources their own energy are more secure than those that cannot. Therefore, both the U.S. and China should want to invest in renewable energy because it could increase their global power.
Yet, the U.S. lags behind the progress in renewable energy made by China. The Climate Action Tracker, a collection of nonprofits that track national governments’ climate policies, rated American policies as “critically insufficient,” its lowest rating, while China, despite having nearly twice the carbon emissions as the U.S., has a higher rating (The Climate Action Tracker; “Can China’s…”). Although much of it was due to the Trump administration’s withdrawal from the Paris Climate Accord and its rollback of environmental regulations, the report underscores how far behind the U.S. is in terms of combating climate change.
Aside from the hard power benefits of clean energy investment related to energy security as mentioned above, this investment also delivers valuable soft power capabilities too. First, the U.S. cannot expect to remain an influential power if it does not address a problem that the rest of the international community views as vital. Second, American action on climate change could encourage other states to address the issue or even take more aggressive action (Baker 2). American leadership on climate change would then place the U.S. in a key position for the development of clean energy and as a leader on the global stage. These two benefits of renewable energy directly affect how the U.S. can protect its position in the international order.
However, for the U.S. energy is also a worthwhile domestic reform to prioritize as part of its “Road to Recovery” because it could help solve infrastructure issues. The American Society of Civil Engineers’ (ASCE) 2021 Report Card on American Infrastructure gave the U.S. a C- for its infrastructure, which is actually an increase for the D+ it has received in years past (ASCE). Similarly, the ASCE gave U.S. energy infrastructure alone a C- (ASCE). All three facets of U.S. energy (generation, transmission, and distribution) have a growing investment gap, while transmission and distribution are already strained as blackouts in the U.S. become more common, which are likely to increase with the effects of climate change (ASCE/“Power outages…”). The Department of Energy estimates these blackouts cost between $28 billion and $169 billion annually (ASCE). Most of these problems originate in old infrastructure in each of the three categories of the energy sector. People expect reliable electricity, and failure to supply power consistently to its population would be a major blow at home and abroad for the image of the U.S. and its state governments. Upgrading this infrastructure is also important practically because it would be safer especially during times of extreme weather. Additionally, the upgrade is practical because the sooner it is done, the more affordable it is. The costs of reaching net-zero carbon emissions, which are closely related to energy infrastructure, would double if the U.S. waited even only until 2030 to take serious action on climate change.
Investing in renewable energy to modernize the U.S. energy sector is a crucial domestic reform because it is also extremely popular. Two-thirds of voters, including both Republicans and Democrats, think the federal government is not doing enough to combat climate change (“How America Can…”). Nearly 40% of U.S. consumers said they were more likely to buy from a company that drew attention to climate change than one that did not, further signaling the importance of the issue among Americans (Morning Consult). Even groups that traditionally oppose any action on climate change are beginning to support action. Republican business donors, spurred by the financial sector’s push for a carbon-neutral economy, are looking for their party to develop policies on combating climate change (“How America Can…”). Even the American Petroleum Institute, one of the most powerful fossil fuel lobby groups in the U.S., recently announced that it was planning to support carbon pricing as a way to keep energy affordable while still combating climate change (Mann). Nevertheless, the enormous market power of the fossil fuel and energy-utility industries means they will be the largest barriers to rapid change to U.S. climate policy. These companies will face pressure from consumers to combat climate change, but there is no telling how far or how serious their commitments will be. Yet, in recent years, much of the investment in action to mitigate climate change and develop clean energy has come from the private sector. Despite the impressive innovation that is happening in businesses, universities, and labs across the U.S., very little of it has been actually produced in the U.S. or even adapted for commercial applications at all. Thus, the U.S. government needs to take action. It cannot fail to address climate change as it has on other issues. If democracy cannot deliver on important, popular issues like climate change, then what is it good for? This failure would validate the claims of authoritarian regimes like China and further undermine Americans’ confidence in the political system.
Despite these reasons to invest in renewable energy for the U.S., China currently leads the way in taking action. Since 2012, when President Xi Jinping rose to power, China has made a concerted effort to increase its investment in clean energy and become a leader in combating climate change, recognizing the domestic and international benefits of doing so. First, although many often criticize China for its extreme pollution, the prevalence of the issue makes it a top priority for Chinese residents according to a 2015 Pew Research poll, so the government feels pressure to address pollution and climate change (Chiu). Second, China is dependent on foreign energy imports and does not want to be at a disadvantage to the U.S., which is an energy exporter. Third, China hopes that by becoming an exporter of renewable energy in the future, it will offer a better alternative to American and other energy exports while also fulfilling its “ambition to replace the United States as the most important player in many regional alliances and trading relationships” (Jaffe 2). China recognizes that the state that can offer better energy solutions increases its global influence. So far China has been successful in working towards that goal. “China is now the world’s top producer, exporter, and user of wind turbines, solar panels, and batteries – the essential building blocks of a clean energy economy” and “accounts for 60 percent of global electric vehicle sales, and the country has long-range plans in place to turn itself into the global leader in developing the fuels and cars of the future” (Baker 2). In addition, in February 2021, China launched its own emissions trading system. Although critics say it is too limited to succeed, China’s system contrasts the lackluster American climate change agenda and it will not be China’s only policy solution (“Can China’s New…”). Climate change mitigation efforts are likely to feature prominently in the goals of the fourteenth five-year plan that is set to be unveiled soon (McGrath).
Proposed Solutions
In order to combat climate change and effectively close this gap with China in the pursuit of renewable energy, the U.S. should take action through private and public sector cooperation to promote investment in renewable energy R&D and implementation and to encourage businesses and consumers to move away from carbon-based energy.
First, the U.S. should adopt a carbon pricing scheme. It should be a federal cap-and-trade auction program because this policy allows for faster progress in reducing carbon emissions while still operating within the market economy. “A carbon price gives producers and consumers an incentive to consider the external costs that their emissions impose on others, promoting socially-efficient resource allocation by addressing the market failure resulting from these externalities” (Best 7). This effect occurs because the added cost of the carbon price encourages polluting firms to find ways to reduce emissions and rewards those that do. Economic studies have concluded that there is a positive relationship between carbon pricing and the implementation of more renewable energy sources and lowering carbon emissions (Best 27; EDF). Two common methods of carbon pricing are carbon taxes and cap-and-trade. Cap-and-trade, specifically systems in which permits for carbon emissions are allocated by auction, are more effective. First, auction systems generate more revenue for governments than other forms of permit allocation, a difference of $55 billion worldwide in 2019 (Raymond 2). Second, cap-and-trade with an auction is more politically popular because the added revenue for governments passes more benefits directly to consumers. Governments can use their increased revenue to benefit consumers either through dividends or financing public projects, especially in clean energy. This policy would effectively incentivize carbon-neutral energy standards instead of imposing them. However, a cap-and-trade auction system must be pursued at the federal rather than the state level. The federal government is better equipped to manage a large program like this. Similarly, the size of the initiative and the fact that many companies operate in multiple states means that wide-ranging rules and procedures could be difficult for firms to manage and end up dampening the effects of the system.
Second, the U.S. should invest in infrastructure improvements financed by revenue from cap-and-trade. As mentioned above, a cap-and-trade auction would generate massive amounts of government revenue. The EU’s Emissions Trading System (ETS) hauled in $21.8 billion in 2020 alone, bringing the total revenue since its implementation in 2005 to $80.7 billion with the amount growing every year as the number of allowances decreases and prices rise (ICAP 7). In the U.S., California, which currently conducts a cap-and-trade joint auction with the Canadian territory of Quebec, collected over $1.124 billion in revenue during its February 2021 auction alone, which is the first of four annual auctions (CARB). Since California represents only a fraction of the nation, a federal version of this program would produce a significant amount of revenue for the U.S. This revenue should be spent on infrastructure improvements that upgrade the energy industry and provide for more opportunities to expand, research, and develop renewable energy and other green infrastructure solutions. For example, the EU requires member states to spend at least 50% of the revenue from the ETS on “energy- and climate-related purposes” (Wiese et al. 1681). The U.S. should follow suit and allocate a certain portion of the revenue to be spent on mitigating climate change while the rest is distributed to the states for green infrastructure projects, which they can choose themselves. However, the federal government should also prioritize R&D spending, to maintain the American lead on China. Such spending by the government alongside infrastructure spending would likely spur increased investment by the private sector in the area of clean energy, thus improving the U.S.’s ability to compete with China in R&D and manufacturing of renewable energy sources.
In this way, both the public and private sectors would be cooperating to deliver clean energy to the American people while also making the country more competitive with China. Aside from these hard power benefits, the U.S. would also reap soft power benefits by becoming a leader in the global fight against climate change. Other countries are concerned about climate change, but it is politically and economically difficult. Thus, seeing the U.S. lead by example would send a powerful message to world leaders about combating climate change. But, most importantly, this domestic reform and its international power implications would put the U.S. well on the road to recovery.
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